## The Commodity Selection Index (CSI)

### What is it?

The Commodity Selection Index (CSI) is a momentum indicator that was developed by J. Welles Wilder, Jr. and was published in his book *New Concepts in Technical Trading Systems* in 1978. The CSI takes trend strength and volatility into account to determine momentum. It was developed specifically for short-term trading of **commodity futures** contracts that are likely have big moves in price and a potentially large ROI. It accomplished this by using the **Directional Movement Index (DMI)** (or the ADXR component of the DMI, to be more precise) to determine trend strength, the **Volatility Index** and Average True Range (ATR) to determine volatility, margin requirements relative to the DMI and volatility, and the reasonable commission rates of the futures contracts.

### How is it calculated?

The CSI is calculated by multiplying the ATR, a constant and the ADXR. The latter is the sum of the recent ADX plus the ADX of 14 periods ago divided by two. The formula for the CSI is:

CSI = ( ADXR x ATR_{14} ) x ( ( V / √M ) x ( 1 / ( 150 + C ) ) ) x 100

where V is the value of a 1c move in the commodity; M is the **margin requirement** in USD for trading the commodity contract, and C is the brokerage or **commission** in USD.

### How is it used?

The CSI is used as a filter to identify commodities that could be traded with a high ROI in the short term. A commodity with a high CSI value relative to other commodities indicates that the underlying commodity is in a strong trend, with a high volatility, and relatively low margin an commission rates.